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Challenging The King Of Chips

July 25, 1993

Information Processing

CHALLENGING THE KING OF CHIPS

Ever since IBM crowned Intel Corp. the heavyweight champ of the personal-computer microprocessor market by giving it the contract for its first PC in 1981, the chipmaker has had little problem disposing of challengers. Motorola, Sun Microsystems, Digital Equipment, and others have at various times introduced chips that were faster or more powerful, but all lacked the market strength to dent Intel's monopoly.

Now there's a new PC chip in town, and it's backed by none other than IBM. The chip, called PowerPC, is the product of Big Blue's 1991 partnership with Motorola Inc. and Apple Computer Inc. The PowerPC is out to take back some of the hugely profitable microprocessor business that IBM bequeathed to Intel when it handed over the responsibility for the heart of its industry-standard PC to the chipmaker a dozen years ago. The three partners have already invested more than $1 billion in their challenger, which was designed jointly by IBM and Motorola in Austin, Tex., at what is probably the world's largest chip-design center.

SMALLER AND CHEAPER. The PowerPC uses an advanced chip technology called RISC--reduced instruction-set computing--to roughly equal the performance of Intel's new Pentium chip. But it is cheaper to make, in part because it is only half the size--more chips can be stamped out of the same silicon wafer. That has allowed Motorola, which is the first of the partners to sell the chip on the open market, to price the initial PowerPC model at $450, vs. $975 for the Pentium. That chip, the model 601, began shipping in June. When three more powerful members of the family are unveiled next year, their technical lead over Pentium could be even greater.

The PowerPC has more than technology on its side. Apple Computer has said it will convert its Macintosh line of personal computers from Motorola's 68000 series to the PowerPC over the next two years, starting with 1 million units in 1994. When combined with PowerPC-based computers from IBM and other computer makers, the new chip could capture up to a third of the PC microprocessor business in five years, up from the 13% share now held by Motorola-based Macs.

NIGHTMARES. All these plans, however, could easily come to naught, as have so many other challenges to Intel's dominance. Digital Equipment Corp.'s Alpha chip--significantly faster than the Pentium--is struggling to find takers among big-name PC makers since it was introduced last year with great fanfare. And the powerful R4400 chip made by Silicon Graphics Inc. subsidiary MIPS Technologies Inc., which started shipping in January, so far lacks the resources and big-company support to take on Intel. "Every one of these chips has a nightmare scenario," says J. Thomas West, senior vice-president for advanced development at Data General Corp., which has not yet placed a bet on an advanced chip. "It's not clear to us that any one of these has a shot at being the winner."

The obstacles are daunting for the PowerPC, as well. Although the PowerPC looks like a winner to Merrill Lynch analyst Daniel Mandresh, "the overriding issue is lack of software compatibility." There are reports that Motorola is adapting Microsoft Corp.'s soon-to-be-released NT software for the PowerPC--Motorola won't comment--and the chips won't be able to run the DOS and Windows operating systems until at least next year, when IBM and Sun Microsystems Inc. are scheduled to unveil PowerPC versions of their OS/2 and Solaris operating systems, respectively. And even that is done through a technical trick called emulation, which slows down the operation of the software. Of course, the PowerPC will run software for Apple's computers--its software developers are already adapting their wares to the new chip--and for IBM's line of engineering workstations, which are based on the Unix operating system favored by techies.

PC powerhouse Microsoft itself is holding back support until the PowerPC proves that it is more than just Apple's new proprietary system. "I don't think it threatens Intel any more than the 68000 threatened Intel," says Carl Stork, Microsoft's director of Windows Platform Definition. "I'm not trying to cast stones at PowerPC, but it's certainly not a slam-dunk today."

Microsoft's skepticism is a major problem, since the software powerhouse could be the difference between success and failure for the new chip. If NT runs on the PowerPC, the chip could grab an estimated 9.5% share of the overall microprocessor market by 1995 and about 12% by 1997, says Dataquest Inc. analyst Ken Lowe--roughly a $1.5 billion business. But without NT, says Dell Computer Corp. chief technical officer G. Glenn Henry, "it's not worth listening to them."

WAITING GAME. PC makers are barely listening so far. Motorola, which has been on an all-out sales crusade in recent months, claims that a handful are quietly designing PowerPC-based systems. But most PC makers would rather not risk the wrath of Intel for a chip whose future is unclear. Cash-strapped suppliers of the peripheral chips that work with the microprocessor are also waiting for clearer evidence of demand.

The chip does have guaranteed markets in Apple and IBM. IBM is committed to using the PowerPC as the brains for everything from palmtops to supercomputers, starting later this year with a portable workstation designed by Tadpole Technology Inc. in Cambridge, England. And on July 1, IBM announced a Power Personal Systems Div. Its mandate: Sell PowerPC-based systems even if it means cannibalizing sales of IBM's Intel-based systems. But that could cause problems. Management consultant Charles Ferguson, who co-wrote the recent book Computer Wars: How the West Can Win in a Post-IBM World, says internal politics is holding up efforts to replace mainframes and minicomputers, IBM's longtime cash cows, with PowerPC-based systems.

CARS AND VIDEOS. Motorola can ill afford any wavering from its partners. The PowerPC is its best and last chance to challenge Intel--and a means to redeem itself for its unsuccessful attempt to launch its own RISC chip a few years ago. "There's no backup plan," says PowerPC Marketing Director Phil Pompa. "We're on the rock face, and there's only one way to go--and that's up."

To help it reach the top, Motorola has launched what Pompa says will be the company's biggest chip-marketing campaign ever. Starting with a 12-page pullout section in The Wall Street Journal in June, the chipmaker launched a series of bold ads--one of them claims that PowerPC "has the power to blow away Pentium"--to notify software developers and potential customers of its latest option. The company's sales and marketing staff, which will triple to 90 people by next year, is also pulling out all the stops.

Already, PowerPC has found customers beyond Apple and IBM. Groupe Bull, for one, plans to build high-end computers around the chips, and its Zenith Data Systems subsidiary could follow suit with personal computers. And there may be big opportunities for the PowerPC beyond the computer market, too. Scientific-Atlanta Inc. is planning to make a cable-television box for interactive TV viewing with the chip, and Ford Motor Co. has announced that it will use the chips for engine control and other functions in its new cars. Motorola plans to have at least one stripped-down PowerPC, at an average selling price of less than $20, in every Ford car by the year 2000.

Intel, however, still owns the game board, and it's not yet playing. The company has not even lowered the Pentium's price since the PowerPC was introduced--and drastic price cuts have been one of the chip giant's most effective weapons against competitors such as Advanced Micro Devices Inc. in the past. "We'll just go ahead and ship a couple million Pentiums before they even get started," boasts Intel Senior Vice-President Paul S. Otellini. Such smugness may not sit well with the chipmaker's customers. "Intel better watch their pricing, or they're going to open the door" to competition from other platforms, asserts Gregory E. Herrick, chairman of PC maker Zeos International Ltd.

And once inside, the powerful PowerPC triumvirate may not be so easy for Intel to dismiss.Peter Burrows in Austin, Tex., with Gary McWilliams in Boston, Robert D. Hof in San Francisco, and bureau reports